SUB-NATIONAL TECHNICAL ASSISTANCE PROGRAM Steps to Issuing a Municipal Bond An Interactive Module December 2013
Navigating through this Interactive Module This is an interactive module. The core content of the module covers the main outline of the presentation. However, you can choose to access additional information that offers more basic concept detail, expert insight (for the advanced audience), and supplementary references. To access the basic/advanced/supplementary information, click on the corresponding action-buttons as they appear throughout the presentation: Basic concept detail Expert insight References
Overview of the Module • Objective: • This interactive Module introduces the user to the process of issuing municipal bonds in a city’s domestic capital market to finance urban infrastructure. It is based on Developing Sustainable and Inclusive Urban Infrastructure Services: A Guidebook for Project Implementers and Policy Makers in India, 2011 by TCG International. LLC • The municipal bond issuance process includes: • Step 1: Fiscal Strengthening and Capital Investment Planning • Step 2: Credit Rating • Step 3: Project Development • Step 4: Financial Structuring • Step 5: Authorization and Approval • Step 6: Preparation of the Prospectus • Step 7: Marketing to Investors • Step 8: Preparation of Documents • Step 9: Completion of the Transaction • The module concludes with a schematic representation of the process and information on how PPIAF – SNTA can assist cities with bond issuance.
What is a Municipal Bond? • A security issued by a local government to debt finance infrastructure. • Repays bondholders the face value plus interest over a specific time. • Broken down into multiple securities disbursed among different investors. • Most often issued at a fixed interest rate. • Long term debt with payments due quarterly, semiannually or annually. • In some countries interest earned on municipal bonds is tax free. Access to more about Municipal Bonds What are the Steps to Issuing a Municipal Bond?
Step 1: Fiscal Strengthening and Capital Investment Planning Get the city’s financial house in order. Access to more about Fiscal Strengthening Debt financing is only possible once a city has established a reliable fiscal surplus of revenues (from all sources) over expenditures (for all purposes) Prepare a capital investment plan for infrastructure projects that need to be implemented • Project Identification and initial costing • Prioritizing • Phasing Access to more about Investment Planning
Step 1: Fiscal Strengthening and Capital Investment Planning Determine the city’s borrowing capacity. Access to more about Borrowing Capacity The amount of money that a city can afford to borrow depends largely on how much of its annual revenue the city can reasonably devote to debt repayment, and the likely terms of the debt (interest rate and duration). • Estimate annual debt service (repayments) that the city can afford. • Rememberthat the annual debt service can be no more than the reliable fiscal surplus available. • Calculate the capital amount on market terms that can be supported by the amount of debt service the city can afford.
Step 2: Credit Rating Obtain an institutional credit rating from a well respected rating agency using the national rating scale. Access to more about Credit Ratings • Need to demonstrate to potential investors that the city has become financially viable and capable of servicing long term debt. • Rating needs to be on the “national scale” that compares the city’s creditworthiness to that of other corporations and governments in the country. • The rating process can start with a “shadow” credit rating to informally preview the results before proceeding to a published rating that is disclosed to potential investors.
Step 3: Project Development Complete all necessary detailed engineering, costing, and procurement planning for the project Experience shows that local governments are more likely to have success if they hire an experienced consulting engineering firm to help them develop the technical side of the project. Design projects to be financially viable and to operate commercially whenever possible. Access to more about Project Viability • Projects that generate revenues can cover all or part of the debt repayments due on the municipal bonds. • The financial viability of the projects underlying the bond issue creates greater investor confidence in the city’s ability to repay its debt.
Step 4: Financial Structuring Structure the bond in a way that attracts private investors while minimizing the cost of interest to the local government. Access to more About Financial Structuring • Just as an infrastructure project needs to be carefully engineered; its debt financing also needs to be properly designed. • Successful bond issuers use financial advisors that are familiar with the needs of investors, and who work with the city to minimize the cost of borrowing. • Financial structuring determines the type of bond issue: general obligation bond, revenue bond or structured debt obligation bond. • The financial structure may also incorporate “credit enhancements”, such as a partial credit guarantee, which make the bonds more creditworthy and thereby increases their marketability and reduces their interest rate.
Step 5: Authorization and Approval Obtain all authorizations required by law and regulations. • State/Provincial and National Government authorities. • Capital market regulators, and securities exchanges. Most importantly, obtain irrevocable approval from the local government legislative council. Access to more about Local Approval • Since the debt incurred will have to be repaid over a long time period the bond must be binding on all future local administrations. • Potential investors need to see a solid political commitment to repay debt that has been contracted for broadly supported public infrastructure projects.
Step 6: Preparation of the Prospectus Prepare the prospectus explaining the amount, purpose and structure of the bond issue. Access to more about Bond Prospectuses • A preliminary prospectus is used for discussions with the rating agency and potential investors in order to define a final bond amount and structure that can be sold at a particular price in the current market. • A final prospectus is made available to all potential investors when the bonds are officially offered to the market.
Step 7: Marketing to Investors Seek investors to purchase the bonds. • The city’s financial advisor can organize a “road show” to present the purpose, structure, and potential rating of the bonds to potential investors in the local capital market. • Discussions with potential investors may lead to changes to the bond structure to make it more attractive to the market. Access to more about Marketing Bonds Once the bond is ready to be issued, obtain a rating for it as a specific security using the same credit rating agency used for the institutional rating. Access to more about Credit Ratings
Step 8: Preparation of Documents Prepare the Trust Indenture which is the legal contract between the local government and the bondholders. Access to more about Bond Documents • A specialized legal team (bond counsel) works closely with the city’s financial advisor to translate the financing structure into a set of legal documents that are the formal basis for contracting the debt financing for the infrastructure projects.
Step 9: Completion of the Transaction Close the financing transaction Access to more about Closing the Transaction • Once the market for the bonds has been confirmed and the legal documents have been prepared and approved, the bonds can be issued to the investors in return for their payment • At the financial close, all of the legal documents are officially signed and the city receives its funds • It is good practice for the proceeds of the bond issue to be deposited directly into an escrow account that can only accessed to pay for implementation of the projects funded by the bond issue
Transaction Costs • There are costs to the local government for doing a bond issue, just as there are loan origination costs charged to the by banks for their lending • Completing all the steps for issuance of a municipal bond requires the assistance of a number of financial service providers: financial advisory firm, credit rating agency, bond counsel, underwriter and trustee at a minimum Access to more about Transaction Costs
SNTA Financial Mgt Assessment SNTA Credit Rating Support Fiscal Strengthening and Capital Investment Planning Institutional Credit Rating Project Development Bond Issue Credit Rating Financial Structuring Authorization and Approvals Marketing to Investors Preparation of Documents Prospectus & Legal Docs SNTA Transaction Support Services Completion of the Transaction
SUB-NATIONAL TECHNICAL ASSISTANCE PROGRAM Thank you.
SUB-NATIONAL TECHNICAL ASSISTANCE PROGRAM Following slides are hyperlinked from the main presentation and provide additional information. They can be accessed from each slide by clicking on the corresponding red/green/blue action buttons throughout the main presentation. For further instructions on how to use these functionalities, click Or click to exit the presentation.
What is a Municipal Bond? A municipal bond is a promissory note issued by a local government (or local public infrastructure authority) to finance capital investments in infrastructure made by the issuer. The local government pledges to repay bondholders the face value of the bond plus interest over a specific period of time. A Municipal bond issue is broken down into multiple bonds disbursed among different investors. For example, an LC 20 million bond issue might be offered in 10,000 individual bonds, each with a face value of LC 2,000. Municipal bonds are most often issued at a fixed interest rate, but variable rate bonds are also possible. Municipal bonds have a long repayment period that approximates the useful life of the infrastructure being financed, with payments due quarterly, semiannually or annually. BACK
Getting the city’s financial house in order Before attempting to issue municipal bonds, a local government or local public service enterprise must be in good financial condition so that it can repay its debts. This means that there must be a reliable surplus of revenues over expenditures that can be used to make the interest and principal payments to bondholders on time and in full. Efforts may need to be made to increase revenue collection from existing taxes, fees and user charges. It may also be necessary to reduce unnecessary expenditures or institute cost saving measures in areas where it is essential to continue expenditures. BACK
What is city financial viability? A city should endeavor to become “financially viable” before seeking long term financing in the local debt market. A city that is financially viable is one that has the financial means to support the social and economic development goals of its citizens and to create a good quality of life for them on a sustainable basis. The following are the features of a financially viable city: 1.The city has in place an efficient, cost‐effective organizational structure built around its key business processes and objectives. 2.Administrative procedures are efficient and well‐documented, and provide understandable, accurate information to all key stakeholders, both internal and external, to support good decision making. 3.The city has a system of internal and external controls that minimize corruption and create a culture of transparency and accountability. Continued on the next slide…
What is city financial viability? Continued… 4.Services are provided using a model of commercial viability that controls expenses and mobilizes adequate resources directly from users, whenever possible, while making subsidies transparent. 5.The city mobilizes buoyant, diversified, local revenue sources in order to ensure financial sustainability and increase financial autonomy. 6.Citizens have a say in determining the level and quality of services to be provided, and provide feedback on the quality of services and input on urban development decisions through participatory mechanisms. (from Chapter 4: City Financial Viability in Developing Sustainable and Inclusive Urban Infrastructure Services: A Guidebook for Project Implementers and Policy Makers in India, 2011 by TCG International) BACK
Chapter 4: City Financial Viability in Developing Sustainable and Inclusive Urban Infrastructure Services: A Guidebook for Project Implementers and Policy Makers in India, 2011 by TCG International, LLC, Silver Spring, MD, USA BACK
Estimating Borrowing Capacity Before the City of Ahmedabad successfully issued the first municipal bond in India without a guarantee from state or national government, the city’s financial advisors carried out preliminary revenue and expenditure forecasts. Various options were analyzed in terms of alternative revenue assumptions, expenditure forecasts, and borrowing. Utilizing an iterative process and estimated financial performance levels and borrowing terms, it was determined that the city could afford an investment equivalent to approximately US$150 million. Based on this analysis, the city reviewed different project priorities and worked out a capital investment plan of US$ 149 million (in Indian Rupees) for 1997 – 2001. BACK
Credit Ratings and Municipal Bonds • Credit ratings quantify the risk that a local government will be unable or • unwilling to repay its debt. • There are “institutional ratings” and specific “bond ratings”. • National scale ratings rank risk in compared to national government bonds. AAA Highest Safety – the rating for national government bonds AA High Safety A Adequate Safety BBB Moderate Safety BB Inadequate Safety B High Risk C Substantial Risk D Default • The credit rating of a municipal bond determines the local government’s • cost of financing its projects. BACK
Credit Ratings and Municipal Bonds Municipal credit ratings are an objective external assessment of the risk that a local government will be unable or unwilling to repay its debt in full and on time. The rating on a GO bond is often referred to as the “institutional rating” of the local government’s creditworthiness. The rating on an SDO or revenue bond is referred to as the “bond rating” and applies only to the specific bond issue. The credit rating of a bond is the principal factor affecting the bond’s interest rate, period of repayment, and other financial conditions required by investors. Therefore, the credit rating of a municipal bond determines the local government’s cost of financing its projects. Municipal bond ratings rank repayment risk in comparison to the riskiness of national government bonds. For local currency bonds, national government bonds are considered risk free and are designated “AAA” on the national rating scale, e.g. AAA(za). Continued on next slide….
Credit Ratings and Municipal Bonds - Continued Investment Grade Ratings: AAA (Triple A) Highest Safety (Can be AAA – ) Instruments rated 'AAA' are judged to offer the highest degree of safety with regard to timely payment of financial obligations. Any adverse changes in circumstances are most unlikely to affect the payments on the instrument AA (Double A) High Safety (Can be AA+ or AA – ) Instruments rated 'AA' are judged to offer a high degree of safety with regard to timely payment of financial obligations. They differ only marginally in safety from `AAA' issues. A Adequate Safety (Can be A+ or A – ) Instruments rated 'A' are judged to offer an adequate degree of safety with regard to timely payment of financial obligations. However, changes in circumstances can adversely affect such issues more than those in the higher rating categories. BBB (Triple B) Moderate Safety (Can be BBB+ or BBB – ) Instruments rated 'BBB' are judged to offer moderate safety with regard to timely payment of financial obligations for the present; however, changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for instruments in higher rating categories. Continued on next slide…
Credit Ratings and Municipal Bonds - Continued Non-Investment Grade Ratings (“Junk Bonds”): BB (Double B) Inadequate Safety (Can be BB+ or BB – ) Instruments rated 'BB' are judged to carry inadequate safety with regard to timely payment of financial obligations; they are less likely to default in the immediate future than instruments in lower rating categories, but an adverse change in circumstances could lead to inadequate capacity to make payment on financial obligations. B High Risk (Can be B+ or B – ) Instruments rated 'B' are judged to have high likelihood of default; while currently financial obligations are met, adverse business or economic conditions would lead to lack of ability or willingness to pay interest or principal. C Substantial Risk (Can be C+ or C – ) Instruments rated 'C' are judged to have factors present that make them vulnerable to default; timely payment of financial obligations is possible only if favorable circumstances continue. D Default (Can be D+) Instruments rated 'D' are in default or are expected to default on scheduled payment dates. BACK
Fitch Ratings, International Local and Regional Governments Rating Criteria,August 17, 2012. Moody’s Investor Services, Rating Methodology: Regional and Local Governments, January 18, 2013 Standard and Poors, Criteria/Governments/International Public Finance: Methodology for Rating International Local and Regional Governments, September 20, 2010. BACK
Financially and Commercially Viable Projects Financial viability means that the full cost of services will be paid over the useful life of the infrastructure. The financial structure of the project should be based on market demand and the willingness to pay for services. Tariffs need to be revised over time to reflect total costs, including compliance with defined environmental standards, service expansion and quality, ongoing operation and management, and depreciation and replacement of assets. It may be necessary to augment project revenues with other funding commitments from general revenues, governmental grants, and transfers. Analysis of local market conditions determines the feasibility of providing commercially viable services and informs detailed project design. Technical design needs to be based on the market demand for services, the willingness to pay tariffs for sustainable infrastructure services, physical development patterns, land values, and environmental sensitivities. The complexity of the design needs to take into account long-term O&M, relative to local agencies’ management capacity. These are key to defining a financially and commercially viable project. If these issues are not taken into consideration, investment could be wasted. BACK
Commercially Viable Infrastructure Projects Developing infrastructure projects in a commercially viable format helps improve management efficiency, mitigate implementation risks, and attract commercial investment. Project development is the process of turning broad planning concepts for infrastructure into implementable designs. A commercially viable format (1) ensures that adequate revenues from project services and from other dedicated sources will cover project capital costs and operations and maintenance (O&M); (2) is socially inclusive and operates in a systemic and sustainable basis; (3) is environmentally sustainable; and (4) has a regulatory framework to enforce quality of service, preservation of public interest, and economic sustainability. A commercially viable infrastructure project addresses residents’ demand for basic services in an economically and environmentally sustainable manner. The project structure will more effectively mitigate risks of implementation and provides better long-term management. As a result, the private sector is more interested in investing resources in projects structured in commercially viable formats than in projects relying on traditional, government-led methods of service delivery. Continued on next slide…
Commercially Viable Infrastructure Projects continued… Since commercially viable projects require in-depth studies, credit enhancements, and institutional structuring, they are more time consuming and costlier in their initial stage than traditionally structured government projects are, but their long-term benefits are far greater. Even with a project development process that encourages commercial viability, special consideration to include the poor in service provision is necessary, particularly in the absence of a regulatory framework that safeguards social and environmental public interests. Substandard government regulation and low implementation capacity create opacity that translates into unquantifiable risk for project developers and investors. BACK
Chapter 5: Developing Commercially Viable Infrastructure Projects in Developing Sustainable and Inclusive Urban Infrastructure Services: A Guidebook for Project Implementers and Policy Makers in India, 2011 by TCG International, LLC, Silver Spring, MD, USA BACK
Types of Municipal Bonds • General obligation bond (GO) • Pledges all sources of revenue, and sometimes all assets, to repayment. • Revenue bond • Pledges only project revenues, and sometimes project assets, to repayment. • Structured bond (SDO) • Pledges only specific revenue sources to repayment as specified in the bond. Types of Credit Enhancements • Debt Service Reserve (Collateralization) Escrow Account:Holds money in reserve for each payment. • Revenue Intercept: Directs transfer revenues to bondholders before they reach the city’s account. • Partial Credit Risk Guarantee: Assures bondholders of at least • partial payment. BACK
Types of Municipal Bonds General obligation bonds (GOs)General obligation bonds represent a promise by the issuer to raise all the revenue necessary to make full and timely payments to investors. Bondholders have a legal claim on all sources of revenue and sometimes all assets of the issuer. Revenue bondsPrincipal and interest payments for revenue bonds are secured only by revenues generated by the particular project being financed. Bond holders have a legal claim only on project revenues and sometimes project assets. Structured bonds Principaland interest payments for structured bonds (sometimes referred to as structured debt obligations or SDOs) are secured only by a specific revenue source which is not typically associated with the project being financed. Bondholders have a legal claim only on the revenues specified in the bond, e.g. sales taxes, hotel occupancy taxes, or intergovernmental tax transfers. Continued on next slide…
Credit Enhancements Credit enhancements are elements built into the design of a municipal bond which result in an upgrading of the bond’s rating by the rating agency. Types of credit enhancements: • Debt Service Reserve (Collateralization) Escrow Account: Holds money in reserve for each payment. • Revenue Intercept: Directs transfer revenues to bondholders before they reach the city’s account. • Partial Credit Risk Guarantee: A partial credit risk guarantee (PCG) provides comprehensive cover to municipal bond investors in the event the local government fails to make debt service payments, thereby causing a default, for any reason. The advantages of adding a PCG to a municipal bond are: • Enables more financing options • Off-sets market failures that limit borrowing and raise the cost of debt • Stimulates the local capital market • Improves the efficiency of scarce capital resources • Supports development of local government • Leverages additional private funding BACK
SNTA Briefs 1: The Advantages of Structured Financing for Sub-National Authorities, Public Private Infrastructure Advisory Facility, 2013 SNTA Briefs 5: Partial Credit Guarantees for Sub- National Transactions,Public Private Infrastructure Advisory Facility, 2013 BACK
Authorizations and Approvals • State/Provincial and National Government authorities need to approve in order to ensure oversight of the municipal finance system in their jurisdiction. • Capital market regulators, and securities exchanges need to approve in order to maintain orderly markets and assure fair dealing between issuers and buyers of bonds. • Since the debt incurred will have to be repaid over a long time period the bond must be binding on all future local administrations. Approval of the legislative body of the city should be binding for the term of the debt. • Potential investors need to see a solid political commitment to repay debt that has been contracted for broadly supported public infrastructure projects. Willingness to repay is important and can only be assured if there is local consensus on the need to finance the projects covered by the bond. BACK
Authorizations and Approvals Before proceeding to the capital market, a local government needs to have authorization from the local, state/province (if applicable), and central governments to contract debt, as well as approval from the capital market regulatory authority and the securities exchange organization to issue bonds in the capital market. It is especially important that the bond issuance be formally authorized by the local government’s legislative council, since the debt incurred will have to be repaid over a long time. In some bond issues in the United States (e.g., GO bonds), there is a specific referendum voted by the citizens of the jurisdiction. The point is to assure potential investors that there is a solid political commitment to repay debt that has been contracted for the purpose of implementing public infrastructure project. BACK
Bond Prospectuses When municipal bonds are offered to the public in the U.S., the issuer must publish a prospectus (also known as an Official Statement) that summarizes the main features of the bond and the financial condition of the issuer. BACK
Bond Prospectuses A prospectus is formal legal document that provides details about an investment offering for sale in a capital market. Rules pertaining to the information that must be disclosed and when it must be disclosed are set by each country’s capital market regulatory authority. A prospectus should contain the facts that an investor needs to make an informed investment decision. There are usually two types of prospectuses for municipal bonds: preliminary and final. The preliminary prospectus is the first offering document provided by a bond issuer to potential investors and includes most of the details of the the municipality, the project(s) to be financed and the structural features of the proposed bond. The final prospectus is printed when the bond documents have been finalized, approved and are ready for sale. It supersedes the preliminary prospectus. It contains finalized background information including such details as final structural features of the bond, the exact number of notes issued and the precise offering price. BACK
Marketing Bonds An important step in bond financing is selling the bonds to investors. While bonds cannot legally be offered for sale until the date of issue, the city’s public finance advisor or its underwriter will contact likely investors in the weeks leading up to the sale to assess demand and determine the price at which the bonds will be sold. In the U.S. this part of the process is referred to as a “roadshow” and it may be done through a visit by the city to potential investors or an on-line presentation. A handful of institutional investors – including insurance companies, mutual funds and pension funds – dominate the bond market. The feedback provided by these investors in response to a roadshow is likely to determine how the bonds are priced and whether an attempt is made to restructure the deal to make it more attractive to investors. BACK
Credit Ratings and Municipal Bonds • Credit ratings quantify the risk that a local government will be unable or • unwilling to repay its debt. • There are “institutional ratings” and specific “bond ratings”. The latter are obtained immediately prior to issuing the bond. • National scale ratings rank risk in compared to national government bonds. AAA Highest Safety – the rating for national government bonds AA High Safety A Adequate Safety BBB Moderate Safety BB Inadequate Safety B High Risk C Substantial Risk D Default • The credit rating of a municipal bond determines the local government’s • cost of financing its projects. Back to Module BACK
Credit Ratings and Municipal Bonds Municipal credit ratings are an objective external assessment of the risk that a local government will be unable or unwilling to repay its debt in full and on time. The rating on a GO bond is often referred to as the “institutional rating” of the local government’s creditworthiness. The rating on an SDO or revenue bond is referred to as the “bond rating” and applies only to the specific bond issue. Institutional ratings are the underlying basis for a bond rating, but careful structuring of credit enhancements can improve the rating of a city’s bond so that it is higher than the city’s institutional rating. For this reason, bond ratings are obtained just before the bond in questions is issued on the domestic capital market. Municipal bond ratings rank repayment risk in comparison to the riskiness of national government bonds. For local currency bonds, national government bonds are considered risk free and are designated “AAA” on the national rating scale, e.g. AAA(za). BACK
Preparation of Documents The Trust Indenture is the legal contract between the city bond issuer and the bondholder. In the event of any dispute between the city and the bondholders, it is the trust indenture that is the reference document for dispute resolution. It is a highly complex legal document because it must specify all of the terms and conditions that apply to the city as they repay the debt. It must faithfully incorporate all of the structural features and credit enhancements presented in the final bond prospectus. Because bond indentures are complex contracts, city’s employ highly specialized legal consultants, known as bond counsels, to prepare the documents. BACK
Preparation of Documents The trust indenture of a municipal bond is the legal and binding contract between the bond issuer city and the bondholders. The indenture specifies all the important features of a bond, such as its interest rate and maturity date, timing of interest payments, method of interest calculation, and how structural credit enhancements will operate. The indenture also contains all the terms and conditions applicable to the bond including financial covenants and methods for determining if the issuer is remaining within the covenants. Should a conflict arise between the issuer and the bondholders, the indenture is the reference document used by the trustee representing the bondholders and the city to resolve the conflict. An example demonstrating the complexity of a bond indenture can be found at: http://www.shepherd.edu/bogweb/june04/bond_indenture.pdf BACK
Completion of the Transaction • The process of completing the financial closing and issuance of municipal bonds in the U.S. typically includes the following steps. • City passes a resolution authorizing the issuance of the bonds. • City approves the Tax Exemption Certificate. • City approves the Continuing Disclosure Certificate. • Signing of bonds by the Mayor, City Clerk and Finance Director. • Signing of other closing certificates and documents: a) Delivery Certificate); b) Transcript Certificate; c) City Clerk’s Certification to the County Auditor; d) IRS Form 8038G Information Return; e) Comfort letter or guarantee • Financial Advisor compiles total costs of issuance to compare to benchmark of 1.25% of the par value of the bonds issued. • City supplies closing wiring instructions to winning bidders. • City returns original, executed documents to bond counsel for distribution to winning bidder. • City prepares wiring instructions for bond proceeds. • City confirms wire transfer of proceeds through the financial advisor. • City releases the bonds to the municipal bond clearinghouse. BACK
Transaction Costs • Transaction costs depend on local market conditions and in a mature market they may range from 3% to 1.25% of the value of the bond issue. The most typical costs of issuing a municipal bond include: • Financial advisor. The complexity and purpose of the financing may matter more in determining the fee than the actual amount borrowed. • Bond counsel. Attorney fees may be based on time and charges or negotiated in advance at a fixed amount. • Credit Ratings. Rating agencies typically vary their fee schedule by the amount of the bond sale among other factors. • Guarantees or letters of credit (LOC). The cost of guarantees varies with the kind of guarantee being made. Bank LOC are charged as a percentage of the debt they secure. • Underwriter fees. Much of their compensation accrues on a per bond basis and thus larger bond issues incur higher underwriter fees. • Other fixed costs. Other costs associated with a bond sale, but generally expected to be invariant with respect to the amount of the sale include the printing of bond sale documents, and registration fees. BACK
Capital Improvement Plans (CIP) The value of a CIP is that it brings order and method to the planning and financing a city’s required capital improvements. A CIP lists each proposed capital project—the year and month when it will be started and the amount expected to be expended on the project each year. The costs of each project are aggregated for a programmatic summary of all capital construction for each year. The total costs are compared with funding available from all sources, including grants, current and future revenues, and borrowings. In the end, a CIP represents a realistic balancing of project requests and financial capabilities. BACK